The Government’s Help to Buy subsidised mortgage scheme is unnecessary and
could create “the conditions for the next bust”, economists have warned.

In an analysis of the housing market, Rob Wood, UK economist at Berenberg Bank, said market conditions have improved “sharply” since March, when George Osborne, the Chancellor, unveiled his planned subsidy on up to £130bn of mortgage debt, and that the policy “is not a risk worth taking” any longer.

Albert Edwards, economic strategist at Societe Generale who has described the scheme as “moronic”, added that the market is already in the midst of a bubble and a bust is “inevitable”.

Their concerns add to the growing chorus of voices warning that the Help-to-Buy guarantee, to be launched in January, could damage Britain’s longer-term prospects. Vince Cable, the Business Secretary, and Barclays chief executive, Antony Jenkins, have expressed fears of a housing boom.

“The scheme is not needed. Monetary stimulus and improving confidence are already driving a recovery in the real economy and in the housing market. Adding a subsidy to an already improving market is not a risk worth taking.”

Mr Wood accepted that house prices in real terms are “10pc to 20pc lower relative to earnings than in 2007 and house sales are running at half their pre-crisis rate”, but he stressed that “both are turning up sharply” already. “Mortgage approvals have risen 30pc in the past year. So the reason for the scheme – to fix a market failure– is fading,” he said.

“Based on house price/earnings valuations there is indeed no new bubble for the simple reason that, unlike the US, the previous housing bubble never deflated,” he said.

UK house prices are about 4.5 times earnings on average, the same level as in 2003. But the figures are skewed by London, where the ratio has risen to nearly six times earnings in the past four years as the national average has remained steady.

The Chancellor has defended the scheme as necessary because, by driving buyers into the market, housebuilders will step up their building rates. He cited research by the respected former Bank rate-setter, Charles Goodhart, that found the scheme would increase housebuilding by between 30pc and 40pc by 2015.

However, Mr Wood countered that “the decade running up to 2007 shows that building does not respond much to house prices” and that the scheme would therefore be more likely to inflate a bubble.

The Bank’s Financial Policy Committee (FPC) is expected to have discussed the scheme at its meeting last week. The FPC has been given powers to recommend shutting down the scheme in 2018, and any concerns are likely to be disclosed in the minutes to the meeting, which are published on October 1.

However, the Bank last week fuelled concerns by noting in its agents report that “estate agents and house builders reported that housing demand was running ahead of the available supply of existing or newly built homes, leading to rising house price expectations”.

The minutes to the Monetary Policy Committee rate-setting meeting last week also revealed that worries are increasing. “Property market developments would become more of a concern if a period of rapid real house price increases appeared in prospect,” the minutes said.

The MPC added that the FPC had “a range of instruments they could deploy to mitigate this”.